Bombay High Court Questions Jurisdiction of GST SCNs Based on 1/3rd Land Valuation Rule, Grants Interim Protection

The Bombay High Court has raised serious questions over the jurisdiction of GST authorities to issue show cause notices founded on Paragraph 2 of Notification No. 11/2017–Central Tax (Rate), which mandates a uniform one-third deduction towards the value of land in construction contracts. The bench of f Justices G.S. Kulkarni and Justice Aarti Sathe restrained further action on a GST show cause notice issued under Section 74 of the CGST/MGST Acts, noting that the very basis of the demand has already been held ultra vires by High Courts in Gujarat and Delhi. A writ petition filed by a real estate developer challenging a show cause notice dated 29 September 2025 issued by the Additional Commissioner (CGST & Central Excise), Mumbai East. The petitioner contended that the demand was unsustainable as it relied squarely on the impugned paragraph of Notification No. 11/2017, which prescribes a mandatory 1/3rd deduction of total consideration towards land value, irrespective of actual facts. At the outset, the petitioner drew the Court’s attention to earlier orders of coordinate Benches of the Bombay High Court in similar matters, particularly involving other developers, where identical issues were admitted and interim reliefs were granted. The Court noted that in one such matter, although interim protection was initially made conditional upon a 10% deposit of the disputed tax, the Supreme Court subsequently stayed that pre-deposit requirement. As a result, later petitions were granted interim relief without insisting on any deposit, subject to the outcome of pending proceedings before the apex court. Crucially, the Bench took note of the Gujarat High Court’s landmark ruling in Munjaal Manishbhai Bhatt v. Union of India, which struck down Paragraph 2 of Notification No. 11/2017 as arbitrary, discriminatory, and violative of Article 14 of the Constitution. The Gujarat High Court had held that a mandatory, uniform deduction of one-third towards land value is impermissible, particularly where the actual value of land is ascertainable or can be determined through valuation rules. Instead, the provision was read down to make the one-third deduction optional, applicable only where land value cannot be separately identified. The Bombay High Court also recorded that the Delhi High Court has taken a similar view, reinforcing the challenge to the validity of the notification across jurisdictions. Importantly, the Bench referred to an order of the Supreme Court dated 1 October 2024, passed in special leave petitions filed by the Union of India against the Gujarat High Court decision. In that order, the apex court directed that, pending final adjudication, there shall be no coercive steps and no adjudication of show cause notices issued on the basis of the impugned notification. The Supreme Court also directed that refunds ordered by High Courts be implemented, subject to the outcome of the SLPs. Against this backdrop, the Bombay High Court observed that a “basic jurisdictional issue” arises: whether GST authorities can at all issue show cause notices founded on a notification that has been declared ultra vires by constitutional courts and whose operation has effectively been neutralised by interim orders of the Supreme Court. The Bench emphasised that Notification No. 11/2017 is a central notification under a central legislation, and therefore principles laid down by the Supreme Court on pan-India applicability of such decisions would be directly relevant. The Court directed the tax department to file a reply affidavit specifically addressing the preliminary issue of jurisdiction—namely, whether the authority was legally empowered to issue the impugned show cause notice in light of the prevailing judicial position. The reply is to be filed within two weeks, with the matter listed for further hearing on 20 January 2026. The Bench ordered that no further action shall be taken pursuant to the show cause notice. The order provides immediate relief to the petitioner and adds to the growing judicial scrutiny of GST demands raised on the basis of the controversial one-third land valuation rule in construction services. Case Details Case Title: Khusharav Builders Pvt. Ltd. Versus Additional Commissioner (A.E.), CGST and C. Ex. Case No.: WRIT PETITION (L) NO. 34439 OF 2025 Date: 6/01/2026 Counsel For Petitioner: Naresh Jain Counsel For Respondent: Satyaprakash Sharma Click Here To Read Order Read More: Rs. 10.66 Crore GST Recovery Secured by Rohtak CGST Commissionerate After Arrest of Pharma Promoter

Bombay High Court Questions Jurisdiction of GST SCNs Based on 1/3rd Land Valuation Rule, Grants Interim Protection

Membership Required

Latest articles

DGFT’s Minimum Import Price Can’t Be Adopted for Valuation of EOU DTA Clearances: CESTAT

No PE for Oracle Systems in India: ITAT Deletes Notional Royalty Additions

GST Can’t Be Deducted From Retiral Dues Of Employees: Allahabad HC

No GST On Consultancy Service By Architect To Ahmedabad Municipal Corporation: AAR

More like this

DGFT’s Minimum Import Price Can’t Be Adopted for Valuation of EOU DTA Clearances: CESTAT

No PE for Oracle Systems in India: ITAT Deletes Notional Royalty Additions

GST Can’t Be Deducted From Retiral Dues Of Employees: Allahabad HC

About us

Company

Categories